This circular provides clarification on the refund of unutilized input tax credit (ITC) of GST paid on inputs used in the manufacture of fabrics that are exported.

It addresses doubts arising from restrictions imposed under Notification No. 5/2017-Central Tax (Rate), which limits refund of accumulated ITC in certain cases where credit accumulates due to higher tax rates on inputs than on outputs. The circular explains that such restrictions are issued under clause (ii) of section 54(3) of the CGST Act and apply only to domestic supplies where refund is claimed on account of inverted duty structure.

It is clarified that these restrictions do not apply to zero-rated supplies, namely exports of goods or supplies made to SEZ units or developers. Accordingly, manufacturers exporting fabrics are eligible to claim refund of unutilized input tax credit of GST paid on inputs (excluding capital goods), subject to compliance with section 54(10) of the CGST Act and other prescribed conditions.

The clarification ensures that exporters of fabrics are not denied refund benefits merely due to the restriction applicable to inverted duty structure cases and reinforces the principle of zero-rating of exports under GST.